The European Central Bank Claims Digital Assets are not dangerous to the Economy

The European Central Bank (ECB) recently revealed that the cryptocurrencies would not immediately cause any harm or risks to the country’s economy.

The recent document on the crypto asset announced on Friday, the ECB revealed that the entire value of crypto assets is very small as compared to the financial system and connecting them to the financial sector is difficult due to restrictions. There are various banks in Europe that do not seem to have ‘systematically relevant’ holdings of digital assets.

The ECB created an advisory committee in March 2018 and named it as- the Internal Crypto-Assets Task Force (ICA-TF). The role of this ICA-TF is to monitor and review the impact of cryptocurrencies and to discover the threats over the European market. The white paper examined the crypto assets risks in the regions such as financial stability, financial market infrastructure, and monetary policy.

After investigating thoroughly, the ICA-TF noticed that crypto assets would not pose any immediate threat to the financial sector of Europe for the existing market size. Over the impact of crypto assets to the monitory policy, it mentioned that they are not competing against the fiat currency and deposits as of now. They lack a few characteristics of money.

Further, the ECB stated that currently, only a few merchants allow crypto assets as a payment mode to buy goods or services with bitcoin and there is no significant effect of cryptocurrencies over the real economy or on monetary policy of Europe.

“The high price volatility of crypto assets, the absence of central bank backing and the limited acceptance among merchants prevent crypto-assets from being currently used as substitutes for cash and deposits, as well as making it very difficult for crypto assets to fulfill the characteristics of a monetary asset in the near future.”

As of now, cryptocurrencies cannot be used as a means of conducting money settlement within the financial market infrastructure (FMIs). Maybe, depending upon the regulation in the future, they could mark their presence in FMIs and increase the profile risk.

However, the paper notified that only a few retailers are accepting bitcoin as a payment technique, cryptocurrencies are powerful and might significantly grow in the days to come.

It is very much essential that the ECB regularly monitor the event of the digital asset, create awareness, and build strategies to deal with any worst situations, in collaboration with appropriate authorities, the paper pointed.

In May, the President of ECB, Mario Draghi, spoke to a student saying that crypto assets are not currencies, but high risked digital assets and after which the report was issued.

As of now, the ECB is not in support of releasing central bank cryptocurrency but is ready to examine because of the growing digital economy.

Draghi said,

“At this point in time they are not significant enough in their entity that they could affect our economies in a macro way.”

The central bank mentioned that a CBDC could be developed as a user-friendly, a risk-free asset that will fulfill the demand of the public for an economy that is virtual and protected.

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